About Us

Corporate Governance

Introduction

aafaq Islamic Finance PSC maintains and delivers high standard Corporate Governance under Sharia Compliance through its Board of Directors. The foundation of aafaq’s long term success is its prudent corporate governance practices and by delivering value to its shareholders and stakeholders. The board ensures the company’s integrity, professional and regulatory conduct are continuously upheld to support aafaq’s pursuit of achieving long-term and sustainable value for its shareholders. With stringent corporate governance practices and regulations, the framework is supported by right culture, values and behaviors across the entire organization including board levels. A clear organizational structure is maintained with well-defined accountabilities, responsibilities, and robust internal control and risk management mechanisms.

The Board continuously explores improvement opportunities to the Company’s governance processes on an annual basis. Applicable incremental changes are deemed necessary, ensuring the governance framework meets the requirement of aafaq’s continuously expanding business portfolio; thereby ensuring the company’s achievement of long-term and sustainable values are consistent.

Board Charter

aafaq has developed a Board Charter which outlines key corporate governance principles adopted by the Board of the Company. It defines responsibilities of the Board, Chairperson, Directors and the Chief Executive Officer. The company seeks to specify the role of each party enabling clear segregation of duties in everyday management of aafaq’s business and operations.

The charter also defines and outlines the relationship between the board and the management which involves high performance with integrity. This is undertaken through discussions where performance indicators are executed and achieved by the management according to the set and agreed shareholder’s expectations. The performance and progress of the team is reviewed by the Board at specified intervals to ensure the planned expectations on target are met. In case, the targets are not met, further remedial measures are implemented in order to achieve aafaq’s expectations.

Roles and Responsibilities of the Board

The Board leads and governs the Company efficiently and effectively by executing their roles and duties with integrity, honesty and professionalism in interest of the law to serve the Company’s shareholders and stakeholders; thereby ensuring the firm’s high standard adherence to corporate governance.

The Board has the following responsibilities:

Conducts performance review of its Sharia Compliant Islamic financing business and its position in the market.

Embarking on various measures to ensure its market share and profitability are not significantly eroded by market forces from a macro and micro economic aspect.

Conducts review on the Company’s strategy, business plans, financial objectives, major capital and operating budgets and policies proposed by the Management team.

Monitors the management’s performance in undertaking and implementation of the adopted strategies and plans whilst providing direction and advice to ensure the realization of the objectives are achieved in view of achieving maximization of shareholder value.

Governs the business conduct, performance and operations of aafaq in close collaboration with the Management.

Interventions and regular reviews are held to ensure the execution of plans is aligned with the set objectives and goals.

The Board receives updates on the Company’s performance during board meetings. The reports include a comprehensive summary of the Company’s business drivers and financial performance of each reporting period regarding industry benchmark, risk management report and compliance report. The Board is also kept abreast of the key strategic initiatives, significant operational issues and latest developments in the financial services industry. Special meetings are held where any direction or decision is required expeditiously from the Board between the scheduled meetings.

Responsible in identifying the principal risks and implementation of appropriate systems to manage and control these risks, in ensuring effective risk assessment and control, the Risk Committee has been entrusted with providing oversight and governance of risks for the Company. The RC is also mandated to support the Board in providing oversight and governance of risk management in relation to Islamic finance related non- compliance risks.

The board ensures that the risk compliance effectively and efficiently executes their functions to support the Board, thereby being certain among others that the Company is adequately capitalized to support risks undertaken and meet regulatory requirements. The Company’s Risk Management report is also presented to the Board on a quarterly basis.

Ensuring Company’s risk management framework and system of internal control are in place throughout the financial year; and are operating adequately and effectively.

By setting talent development and succession planning as priorities to the Board, adapted with high-performance workforce contributing to the Company’s sustainability and competitiveness; the board entrusts the Head of Human Resource Department with the responsibility of providing oversight and direction on human resource matters, and to recommend remuneration and human resource strategies such as employee value propositions, retention strategies, performance management and succession planning.

The Board Executive Committee approves changes to Company’s HR policies in line with the HR strategy and direction set by the Board. aafaq has made a concerted effort to enhance and realign its HR and talent management to attract and retain its existing talent in view of building high-performing workforce. The Board also monitors succession planning updates presented by the Company’s HRD thereby ensuring smooth transition of key personnel into critical positions. Development plans for identified successors are put in place based on their readiness to assume the positions; salary and grading structure, retention plans and incentive schemes for key Senior Management as well as employee value propositions.

The Board is responsible for ensuring the adequacy and integrity of the Company’s internal control system. With the support of the Audit Committee and the Internal Control Department, the Board ensures that there is a process for reviewing the adequacy and effectiveness of the Company’s internal control system.

Appointment, Retirement and Re-Election

According to the aafaq’s memorandum and articles of association, all Directors are required to seek re-election by shareholders every three years, and one-third of the Board must seek re-election on an annual basis.

Segregation of duties between Chairman and CEO

The roles of the Chairman and the Chief Executive Officer are distinct and separate, with a clear division of responsibilities. The Chairman leads the Board and ensures the effective engagement and contribution of all directors. The Chief Executive Officer has responsibility for all aafaq’s business operations, including setting of the strategy, policy and operational management, and he acts in accordance with the authority delegated by the Board.

All directors participate in discussion of aafaq’s strategy, financial and operational performance and risk management, either in Board meetings or in the Board Committees on which they serve. All such meetings are structured to allow open discussion and accountability.

The Board establishes the rules relating to administrative, financial and employee matters; displays requirements for carrying out Board business and meetings; and mandates the roles and responsibilities of Board members.

Access to Information and Advice

Prior to each Board Committee meeting, Directors are provided with complete and relevant information concerning financial performance, updates on corporate development, business progress, risk, compliance and proposals. The Board is given sufficient time to evaluate the reports and proposals and if necessary, request additional information. This enables the Board to discharge its responsibilities effectively. The minimum information provided to the Board on proposals to be deliberated includes objective, background, key issues, rationale as well as financial and non-financial impact of the proposals for the Board to make informed and effective decisions.

The Directors may communicate directly with Key Senior Management to seek advice and request further information as well as updates on any aspect of aafaq’s operations and business concerns.

In addition, the Directors have the right to seek independent advice on specific matters that in their opinion require unbiased evaluation, at the expense of aafaq. A formal procedure is in place to facilitate them in seeking independent professional advice. A copy of the report or independent advice will be made available to the Chairman and, if deemed appropriate, be circulated to all Directors for deliberation.

Meetings and Supply of Information to the Board

Board meetings are conducted quarterly and whenever required to deliberate any arising issues. At each Board meeting, the Board among others is informed of decisions and salient issues by the respective Board Committees’ Chairman/representatives. Minutes of the respective Board Committees meetings are also tabled for the Board’s information. For the financial year ended 31 December 2015, the Board is satisfied with the time commitment given by the Directors towards fulfilling their roles and responsibilities as Directors of aafaq. There were 6 Board meetings and 4 Board Committee meeting in 2015.

Name of the Directors

Position

Sheikh Sultan Bin Mohammed Bin Khalid Al Nahyan

Chairman

H.E. Abdul Jaleel Abdul Rahman Mohammad Al Blouki

Deputy Chairman

Mr. Matar Hamdan Sultan Hamad Al Ameri

Board Member

Mr. Mansoor Ishaq Sulaiman Mohamed Abushousha

Board Member

Mr. Saif Ali Mohamed Munakhas Alshehhi

Board Member

Board Committees

To ensure effectiveness in executing its roles and responsibilities, the Board also delegates specific authorities to the following committee:

Executive

Audit

Risk Management

Internal Shari ’a Compliance Committee

Credit

Compliance

Investment

Remuneration

Investment

The delegation of authority is expressly stipulated in the charter of the respective Board Committees. The charter are reviewed periodically to ensure effective and efficient decision making with the Company’s Governance Framework. The Board Committees also act as oversight committees, evaluating and recommending matters under their purview for the Board to consider and approve. The Board receives updates from the respective chairman/representatives of the above mentioned committees on matters that require specific attention that are deliberated and considered at the meetings of Board Committees.

Audit Committee

The Audit Committee conducted 4 meetings in 2015 to deliberate on matters relating to aafaq. The Audit Committee also met the external auditors on 3 other occasions in 2015.The Audit Committee keeps the Board informed of its activities and recommendations from time to time.

Risk Committee

The Risk Committee is responsible for formulating and reviewing the risk management policies and risk strategy of aafaq. The Risk Committee, and the Company’s Chief Risk Officer, defines the risk management objectives across risk categories and business lines with a view of setting the Company’s risk appetite.

aafaq’s risk management approach is based on the three-lines of defense concept whereby risks are managed from the point of risk-taking activities. This is to ensure clear accountability of risks across the company and risk management as an enabler of the business units. As a first line of defense, the line management, including all business units and units which undertake client facing activities, are primarily responsible for risk management on a day-to-day basis by taking appropriate actions to mitigate risks through effective controls. The second line of defense provides oversight functions, performs independent monitoring of business activities and reporting to management to ensure that the Company is conducting business and operating within the approved appetite and is in compliance to regulations. The third line of defense is Internal Audit which provides independent assurance to the Boards ensuring the internal controls and risk management activities functions effectively.

The members of the Sharia committee are distinguished scholars within the Islamic finance industry. The Sharia Committee ensures that Sharia rulings relating to aafaq’s Islamic financing business model and services comply with the fundamental Sharia principles and resolutions by the relevant Sharia authorities. aafaq’s Sharia Committee is governed and regulated by the Central Bank of the UAE and supervised by an independent Fatwa & Sharia’s Supervisory Board (FSSB). The FSSB supervises all transactions, operations, and activities with full coordination with the Internal Shari ‘a Control Department to ensure that the aafaq’s business model is fully Shari ‘a compliant. The Internal Shari ‘a Compliance Committee is a body to oversight all activities are being carried out in the company. Its sole purpose is to assist Senior Management in fulfilling its oversight responsibilities. Internal Shari ‘a Control Department is to review and analyze risk associated with all existing activities of the Company and their compliance to the Islamic Shari ‘a doctrine in the world of finance. The meetings of the Sharia Board are held periodically or based on specific requirement basis. The ruling on Sharia compliance is represented by its Chairman Dr. Jassim Al Shamsi. Key roles of the Board are summarized as below:

Sharia Research & Secretariat

The Sharia Research & Secretariat Unit comprises qualified Sharia officers who conduct the pre-product approval process, research, vetting of issues for submission and undertake administrative and secretarial duties relating to the Sharia Committee. This unit is divided into two functions:

Research

Responsible for performing in-depth research and studies on Sharia issues, including providing day-to-day Sharia advice and consultation to the business and support units and/or those involved in the product development process.

Sharia Review

The Sharia Compliance Review exercise comprises of qualified Sharia officers, who are responsible for conducting the Sharia compliance review function. This review includes a regular assessment on Sharia compliance in the activities and operations of the Company, including examining and evaluating the Company’s level of compliance to the Sharia remedial rectification measures to resolve non-compliances and control mechanisms to avoid recurrences.

The responsibility also includes coordinating submission of proposals to the Company’s Boards and UAE Central Bank on the appointment and reappointment of the Sharia Committee members.

Sharia Risk Management

The existing Risk Management framework also includes risk identification measures of Sharia non-compliance risk. Sharia Noncompliance risk is defined as the Company’s possible failure to comply with Sharia rulings as determined by the relevant Sharia Committees and regulatory bodies.

Sharia Audit

Sharia audits are undertaken as part of the Company’s existing internal audit. Findings related to Sharia products and services are reported to the Sharia Committee.

Credit Committee

The credit Committee is chaired by the CEO and comprises of 5 members. The purpose of credit risk management is to keep credit risk exposure to an acceptable level in relation to the capital outlay, and to ensure the returns commensurate with risks. aafaq has implemented risk-based delegated authority framework that promotes clarity of risk accountability by being consistent with three-lines of defense model on risk management; and the risks are managed from the point of risk-taking activities. The business unit is the first line of defense that manages risk proactively with the Company’s Credit Risk Department (CRD) which functions independently as the second line of defense. This enhances the collaboration with controls in form of segregation of duties.

The Company adopts a multi-tiered credit approving authority spanning from delegated authorities at business levels; joint delegated authority holders between business units and CRD, to the board credit committees. The credit approving committee is set up to enhance the efficiency and effectiveness of the credit oversight as well as the credit approval process for all credit applications originating from business units. Credit applications are independently evaluated by the CRD team prior to submission to the committee for approval. The responsibilities of the Credit Committee include the following:

To review/veto, with power to object or support, all proposals recommended by the Board for approval/affirmation;

To also affirm annually existing limits approved by the Board and recommended by the credit committee for renewal;

To carry out such other responsibilities as may be delegated to it by the Board from time to time; and

To provide oversight of the entire credit management function covering but not limited to portfolio, end-to-end process, infrastructure, resources and governance.

Investment Committee

Board has mandated the Investment Committee to review, analyze and approve corporate matters relating to the investment strategy outlined by the Board and to continually monitor aafaq’s financial and operational performance in the investments undertaken by aafaq along with assessing future investment opportunities. The Investment Committee includes members who are various head of departments operating within aafaq’s business lines and support functions notably representatives from finance, legal, Risk Management and a member from the Internal Sharia compliance department to ensure alignment and synergies across all the core business sectors and support functions are involved in the review, approval and decision making of Investment being undertaken by aafaq. The Committee convened 5 times in 2015 to discuss.

Executive Committee

The primary role of the Executive Committee is to oversee the implementation and monitoring of the Board’s decisions and to provide strategic guidance for the Company up as delegated by the Board and the committee.

The key responsibility of the Board Executive Committee includes the following:

Review and provide input and guidance in the implementation and monitoring of the strategy (ies) and all other matters approved by the Board.

Review the strategic and business plans and budgets of the Company.

Review potential investments, mergers, acquisitions and divestitures of businesses and other assets of the Company.

Review management reports from business and support units on key initiatives undertaken by the Company.

Monitor and evaluate political, economic and business conditions and developments in the financial markets on an on-going basis and to discuss with the management of the Company to ensure that any potential material impact is identified and managed accordingly.

Consider other matters or undertake such duties and responsibilities as required from time to time by the Board.

Proactive Communication with Shareholders

The Board ensures that shareholders are well informed on aafaq’s business strategy and direction. Transparent and timely communication with the shareholders is essential in successful implementation of aafaq’s strategies and helps to foster shareholders’ confidence in aafaq’s success. To raise the level of corporate credibility and governance as well investor confidence setting of a communication policy was essential thus leading to aafaq designing a communication framework with clear sets of communication guidelines and protocol’s. The communication guidelines and protocols encompass the following:

Use of the various available mediums of communication,

Policies and procedures relating to dissemination of information to the Shareholders, media and other stakeholders,

Step-by-step approach in handling material information; and mechanisms used to gauge external opinions

Contacts and communication with stakeholders are conducted through the designated spokespersons approved by the Board or the Company’s Chief Executive Officer.

Financial Statements Reporting & Accountability

Financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) and UAE Central Bank guidelines. The Financial Statements are prepared with an ongoing concern thereby providing true and fair view of the state of affairs of aafaq as of 31 December 2015. Appropriate accounting policies have been applied consistently in preparing the financial Statements, supported by reasonable and prudent judgment and estimates. The Directors have overall responsibilities in taking such steps; and are open to safeguard the assets of aafaq; ensuring aafaq’s financial report delivers a balanced and comprehensive assessment of its financial position and prospects.

The Audit Committee assists the Board in overseeing the financial reports, internal control, risk management and governance processes currently operating within aafaq. The Audit Committee reviews the quarterly, semi-annual and year-end financial results, audit plan, audit report, functions of internal audit, related party transactions, conflict of interest situations and independence of external auditors. As per the requirement of the Central Bank, aafaq meets the required submission of its financial statements along with the required regulatory written confirmations of its compliance requirements set out by the Central Bank within the stipulated timeframe.

Internal Control

The Board has a key mandate to ensure and establish a sound system of internal control and in determining aafaq’s level of risk tolerance as well as to continuously identify, assess and monitor key business risks to safeguard shareholders’ investments and aafaq’s assets. These functions are carried out by the Audit Committee and Risk Committee which are responsible for risk management functions, financial reporting, disclosures, regulatory compliance and internal control processes. To achieve this, the Board ensures that the business processes, risk management, policies and procedures, and control mechanisms are adequate and appropriate through periodic review, testing and assessment as set out through the audit and risk management plans. aafaq’s dynamic operating environment requires the Board to constantly review and monitor the effectiveness of its system of internal controls. Regular self-testing and high level risk assessment are conducted, followed by review and update on a periodic basis. Based on the review undertaken throughout the year, the Board concluded that aafaq’s system of internal controls is adequate in meeting its changing needs and regulatory requirements.